States are enjoying windfalls after struggling to predict how President Donald Trump’s federal tax law changes would ripple through their revenue.

All 15 of the states that have reported April tax collections so far have seen them come in better than expected, according to a list compiled by National Association of State Budget Officers. California, Illinois and Connecticut are among them, and New Jersey is expected to report its tally next week. Governor Phil Murphy said this week that tax collections will be more than $250 million above projections.
…..
The influx is providing extra cash for governments already benefiting from the nearly decade-long economic expansion and is coming just as many set their budgets for the coming fiscal year. In some cases, it’s making up for shortfalls earlier in the budget year as tax revenue lagged official forecasts because of the difficulty in predicting how the U.S. tax changes, including the $10,000 cap on state and local deductions, would ripple down through the state capitals.

In California, for example, officials said that taxpayers procrastinated in filing their returns this year over concern that the new deduction limit would drive up what they owe. Then in April, the state collected about $3 billion more in personal-income taxes than Governor Gavin Newsom’s forecast, making up for a shortfall earlier this year and adding to the government’s swelling surplus fueled by stock market gains.

It still remains to be seen how much of the higher-than-expected revenue across states will be recurring or if it’s a one-time bounty, according to the National Association of State Budget Officers.

“We’re seeing good signals and good signs in the economy at large, that always would tend to be correlated with revenue growth,” said Matt Butler, a vice president and senior analyst at Moody’s. “Clearly growing revenue, all else equal, tends to be credit positive for the states.’’

A lot of this had to do with the federal taxable income definition changing… and that many states just use the federal definition, with a few adjustments.

New Jersey and Illinois are the latest states to announce that revenue collections for the current fiscal year are running ahead of earlier estimates. The gains are putting to rest —for now anyhow — speculation that limits on deductions imposed by the 2017 Tax Cut and Jobs Act would negatively impact high-tax, Democratic-leaning states more severely than Republican states with lower levies.

For fiscally stressed states such as New Jersey, Illinois, and Connecticut, the surprise revenue gains are presenting opportunities to close budget gaps that have appeared in fiscal 2019 while also allowing for pension contributions to underfunded retirement systems to be at least maintained at their current rate, if not increased for fiscal 2020. But the increases in revenues are also giving states a chance to continue increasing their deposits of cash into rainy day funds against the day that the second-longest U.S. economic recovery since 1858 comes to an end.
…..
In Illinois, which benefited from a better-than-anticipated 35% rise in personal income tax collections in April, according to Moody’s, Gov. J.B. Pritzker, also a Democrat, proposed depositing $100 million annually into his state’s fiscal reserve if the legislature passes his plan to impose a graduated income tax on state residents. The state currently has just $9.9 million in rainy day funds, an insignificant sum compared with its $35 billion budget.

Rather than being set aside for emergencies, according to the budget document, the rainy day fund was “used as a tool to assist with cash flow until it was nearly drained.” It is little surprise that the Volcker Alliance gave the state a D average grade for fiscal 2016-2018 in Reserve Funds, the second-lowest mark, in our latest report, Truth and Integrity in State Budgeting: Preventing the Next Fiscal Crisis.

…..
Along with increasing their reserves, states should put into place strong rules governing rainy day fund withdrawals as well as for making future deposits. We have found that among the 50 states, only Arkansas and Kansas have minimal guidelines for replenishing budgetary reserves. And five states (Illinois, Kansas, Kentucky, Maryland, and Ohio) lack or have limited policies for tapping the funds, according to Volcker Alliance data.

But even in states with clear deposit and withdrawal rules on the books, governors and legislators may choose to override them.

Yeah, I don’t have much hope that this little windfall will be much help in getting these states to actually fix their huge overspending problems. The report being repeatedly referenced is this one.

State revenue projections tend to be a dash of voodoo wrapped in smoke and mirrors, but this was extreme even for Illinois: Last week, it was announced the state in April got $1.5 billion more in personal income tax collections than anticipated.

The surprise gain – it works out to about 38 percent more than the projected amount — is a rare bright spot in a depressing financial climate dating back decades.

But let’s not break out the champagne yet. The state is still saddled with $8 billion in pending bills, a $3.4 billion deficit and $150 billion in pension issues.

…..

But it starts with knowing what we’re working with. What’s troubling about the April surprise is that it wasn’t predicted. The state Commission on Government Forecasting and Accountability forecasting office credited it to “very strong performances of both personal and corporate income taxes,” but “a precise component breakdown is not yet available for April’s income tax receipts.”

The state Department of Revenue, in a letter to lawmakers, was more salient, pointing to “the performance of the stock market, better federal reimbursement for Medicaid, the elimination of the federal state and local tax deduction and additional changes in the federal tax law” as factors.

In our view, such unreliability highlights just how much Illinois is on shaky ground and totally unprepared in the case of an economic slowdown.

If this is not a one-time windfall and the money continues, paying down pension costs and high-interest bills is a good place to start.

This is true for personal finances as well.

But let’s go back to the “unexpected!” mantra.

A few weeks back, I was at a roundtable discussion with Governing magazine, and one point that popped out at me was the amount of volatility in revenue amounts — that made it very difficult for municipalities/states to do financial projections (no kidding).

One driver of this is the “tax the rich!” attitude — by this, I mean more towards millionaire taxes, taxes of investment windfalls, etc. The more these boom-and-bust revenue sources become a larger percentage of government revenue, obviously the revenue streams are going to be more volatile.

Some residents crossed city lines to buy soft drinks outside the city, partially offsetting what would have been an even steeper reduction, the University of Pennsylvania researchers found.

The whole point was to get people to go to a non-soda-taxing town to buy their sodas, right?

Beverage sales inside Philadelphia’s city limits dropped by 51% but were partially offset by an increase in sales just outside the city, resulting in a net decrease in soda sales of 38% in the area, researchers at the University of Pennsylvania found.

To measure how Philadelphia’s tax affected sales of sugary drinks, researchers analyzed scanner data from market research firm IRI during the year before the tax took effect and the year after. They analyzed sales in Philadelphia, neighboring communities and Baltimore, which served as a control group. They did not study people’s actual consumption habits or health outcomes.

I will make a prediction: the people of Philadelphia are just as fat & diabetic as they ever were.

Also: that the amount of actual soda consumed… did not drop by 38%. Note that they just looked at sales info in specific types of stores:

Researchers tracked sales in 291 chain drugstores, grocery stores and mass merchandise stores. The results do not include independent stores. The researchers analyzed sales in those retailers for a separate study, which is under review and has not yet been published.
…..
“Many Philadelphians avoid the tax by shopping for beverages outside the city,” he said, pointing to a study published late last year showing sales decreases in a soda tax city were offset by people buying sugary drinks outside the city.

Speaking as someone who doesn’t drink sugary sodas, hasn’t in years, and yet is fat (how can that be?), I find the whole thing idiotic.

I feel for the bodega owners who are finding their sales drop because of this bullshit.

Three years ago, Philadelphia became the first major American city to enact a tax on sugary beverages, products that contribute mightily to the nation’s epidemic of obesity, diabetes and heart disease. When Philadelphians go to the polls on Tuesday in primary elections for mayor and City Council, they will be indirectly voting on its survival.

Though not on the ballot, the soda tax has become a heated issue in the city’s local elections this year, with emotions fanned in part by anti-soda tax television commercials and online ads paid for by the beverage industry. The two Democrats challenging Mayor Jim Kenney oppose the tax, as do a score of City Council hopefuls who decry the 1.5 cent-per-ounce tax as an unfair burden on the city’s poorest residents. The levy, on average, adds about 30 percent to the cost of sweetened beverages.

“In my district, 95 percent of the residents hate it,” said Councilwoman María Quiñones-Sánchez, who has introduced legislation that would study the tax and come up with possible alternatives. “The people who buy $7 lattes say the poor should be drinking water, but no one is considering the fact that my constituents live in food deserts with no access to fresh fruit and vegetables.”

….
In a cash-strapped city where a quarter of all residents live in poverty, Mr. Kenney sold the tax as a revenue generator, not a nanny-state gambit to change unhealthy habits. The City Council approved the measure, 13 to 4.

Wait a sec. If sales of sodas dropped 50% in Philadelphia due to the tax… how is it supposedly a huge revenue generator?

Industry executives say the tax is a failure and that it goes against the will of the people. “Beverage taxes hurt working families, small local business and their employees,” said William Dermody, a spokesman from the American Beverage Association, which news reports indicate has spent more than $1 million on the city elections from April 2 through May 6. “And polls show a majority of Philadelphians want it repealed.”

In a city with some of the nation’s highest rates of obesity and Type 2 diabetes, public health experts have a different concern: whether the tax is having a significant impact on people’s consumption habits.

A study published last week in the medical journal JAMA found that the law dampened supermarket sales of sweetened beverages by 38 percent; a study by Stanford University’s Graduate School of Business, published last January, put that number at 22 percent. Other studies have found less significant effect. Experts say it could be years to determine whether the policy has improved the overall health of the city’s residents.

Here’s a thought: you’re not their mama. Let people do stuff you don’t like because it’s NOTYOURBUSINESS.

And to add on to why other countries go for a VAT — it’s because it’s the best way for them to actually collect tax:

In the United States, the Internal Revenue Service estimates, self-employment and farm income are underreported by over 60 percent. Even so, the personal income tax system in the United States works pretty well because most people have an employer. That’s not the case in many other countries.
…..
The success of VAT systems in emerging economies is welcome news for the beneficiaries of that tax revenue. It might be useful one day in the United States, too, and for another reason. Because a VAT taxes consumption, rather than income, it tends to encourage saving and investment.

I have no issue with a VAT, but, again, only in replacing existing taxes, not in addition to current taxes.

Puzzled about why the media thinks voters will be annoyed Morrison lied about the timing of his tax cuts. They didn't seem too upset about all the other lies he told during the campaign. Why start now?

Yes, the above is all about Australia…now for some non-Australian stuff.

Chis Haun a moron that says he studied economics at college. Yet he thinks if you tax the wealth of business owners it will hurt them not us or the workers. If a business looses money they raise prices or fire workers. He failed economics in college. pic.twitter.com/bs6QMAapQk

1/ British Steel is on the verge of collapse because it can't pay a huge EU Carbon Emission tax. This makes British steel much more expensive to produce than China, so it can't compete and will go under. This means China, a hundred times more responsible for carbon emissions than

2/ us, will take our customers and build more factories, emitting even more carbon. So, the EU carbon tax will result in more carbon emissions and even more European unemployment. Such is Socialist logic; a ship of fools that turn successful countries into Venezuelas.

Very informative tweet by AOC. When she says “tax the rich”, she means tax people who do things she doesn’t like. It’s not how much money you make. It’s who you are and what you do. This is why socialism turns into authoritarianism. This is very Venezuela of her. https://t.co/itZf9kCTzG

Houston’s standoff over pay parity between firefighters and police officers is coming to a crescendo after more than a year of legal battles and political posturing.

This week, thousands of firefighters received pay raises thanks to a voter-approved law to give them equal pay compared with police officers of the same rank.

But no one’s celebrating.

The raises came along with 220 layoffs — nearly 6 percent of the force — and 454 demotions within the city’s fire department. Mayor Sylvester Turner has said this was the only way the city could afford the roughly $80 million per year in additional costs.

The fact that the Illinois budget situation has become a farce is no laughing matter to Ted Dabrowski.

“What’s sad about Illinois is whether or not the state has a budget in place really doesn’t matter because it’s never balanced and it doesn’t tell the truth about the state,” the president of online political news publisher Wirepoints told Prairie State Wire. “Politicians are always finding ways to hide billions in spending outside the eyes of residents. Even if the budget is done on time, it doesn’t mean it’s good for Illinois because it never covers the cost of retirement or how much the state is really spending.”
…..
“Them and the legislators who ultimately get the big spending in their districts by not telling the public the truth, and the unions who benefit from all the overspending,” he said. “The winners are the people who benefit based on what’s in these budgets.”

Dabrowski said that major policy changes are the state’s only chance to get back on a sustainable course.

“We would have to have big changes in government because right now the politicians have things exactly the way they want them,” he said. “Illinois hasn’t had a truly balanced budget since 2001. The only way we will have real change now is when fiscal reality truly hits the state.”

I’ve got a lot of Illinois finance stories, and I’m just going to dump a few of them here. Enjoy.

I don’t feel like writing about the (current) problem with Puerto Rico, and its effect on munis. It’s still in process.

But the point is: holders of government bonds have found that when it comes between paying the bondholders and paying the pensions, generally the bondholders will get shafted.

GOODLUCK TO CHICAGO’S NEWMAYOR

It’s a sucker’s game, at this point, to become the mayor of Chicago. I wish Lori Lightfoot well, as she’s going to be having a hell of a time. She does have the opportunity to be like Giuliani in getting things cleaned up… but I don’t think the crime problem is going to be cleaned up by her. The finance situation….sorry, also no.

Mayor-elect Lori Lightfoot could need to come up with more than $200 million beyond what Mayor Rahm Emanuel previously estimated in the 2020 city budget to cover higher pension payments and costs previously covered with expensive borrowing, Emanuel’s chief financial officer said Wednesday.

That would push the budget shortfall Lightfoot faces north of $700 million, higher-than-expected costs the incoming mayor didn’t know about until recently.

The city’s pension investments performed badly at the end of 2018 as the stock market took a dive, Chief Financial Officer Carole Brown said. That led to a negative rate of return that will force the Lightfoot administration to come up with perhaps an additional $100 million as the city shifts to actuarially based pension payments in 2020, Brown said.

In addition, the city’s move away from so-called “scoop-and-toss” borrowing — the practice of paying off old debt by creating new debt — under Emanuel has forced the outgoing administration to find new ways to pay down debt, Brown said. While last year the city’s sales tax revenue was higher than expected and covered those additional expenses, early estimates indicate there will be a need for around $130 million more to cover those bond payments in 2020, Brown said.

The city last year projected the day-to-day operating budget shortfall for 2020 would be just shy of $252 million. That figure did not include an anticipated spike of $276 million in contributions to the pension funds for police officers and firefighters.

So, it was expected that when Lightfoot took office and prepared her 2020 budget, she would have to come up with a combined $528 million in tax increases and budget cuts.

But the increase in pension contributions was an estimate, based partly on an expected return of 7 percent on current investments in the police and fire pension funds. As it turned out, those funds lost money in 2018, which in turn requires the city to increase its contributions.

Now, if the Chicago pensions had been well-funded all along, the hit would not have been as great. If, after years of a bull market, the pensions had been sitting at 100% funded, having a negative 5% or so return would have dinged the pensions only a little bit. The shortfall could easily be amortized over the average working life of participants (which is less than 30 years, y’all).

Just because I link a story doesn’t mean I agree with it or I think it accords with reality in any way. That’s true for any of my posts, btw. Sometimes I don’t feel like making an explicit comment about what I think.

But I bet you can tell which of the above stories I find to be utter bullshit.

NO SURPRISE: BIGCITIES IN BIGDEBT

Of course, Chicago leads the way (as it were) for cities in the hole, but it’s not the only one with trouble:

Annual financial reports “for a city [don’t] present the full picture of their fiscal position, and is deceptive to the public,” the report said.

Tolstoy wrote that all happy families are alike, but unhappy families differ. Well, for cities, the “unhappy” cities seem to be pretty much the same: Democrat-dominated, high-tax, debt-heavy, and population-challenged (as in, people keep leaving).

]]>
meep2019-05-14T10:21:37Z2019-05-14T10:22:27ZJudgment in Moscow by Vladimir Bukovsky: Now Released!tag:stump.marypat.org,2019-04-21:38b055a9c25740dc7e39822b07585fe0/2582cbc0677c065bda6936302fed69db
It’s May 14, which means Vladimir Bukovsky’s Judgment in Moscow is available! That link goes to the kindle version, and there’s also a paperback version available. A hardcover version should become available shortly.

I wrote about the book two months ago, and since then there have been more reviews of the book.

BLURBS

Here are some of the blurbs for the book:

“Russian interference in American politics didn’t start in 2016, but stretches back decades. Vladimir Bukovsky uses the Kremlin’s own documents to show this and much more: how the Soviet Union provided a false face to the world and how Soviet leaders used Western leaders as dupes or willing actors. Judgment in Moscow provides the written Nuremberg trial the Soviets never got when the USSR fell.”
– Anne Applebaum, Author of Gulag: A History (Pulitzer Prize), Washington Post columnist, and visiting Professor of Practice at the London School of Economics

“Judgment in Moscow is an essential warning of the dangers of collaborating with authoritarian regimes.
It’s also a timeless reminder that evil doesn’t die, but must be battled back constantly. The crimes of the Soviet Union were enabled by appeasement and rationalization by politicians in the free world who ignored that the lesser evil is still evil. Today we are witnessing a similar plunge into the depths of moral equivalence and convenient deals with dictatorships. As Bukovsky writes in Judgment in Moscow, using a word much in vogue today, ‘any sane person knows full well when he has entered into collusion with evil.’

“Vladimir Bukovsky’s moral compass has never failed, always pointing at the truth regardless of the circumstances or consequences. No one has written with greater clarity on why engagement between the free world and despots spreads corruption, not freedom. He writes, ‘The voice of conscience whispers that our fall began from the moment we agreed to “peaceful coexistence” with evil.’ We have fallen far indeed, and Judgment in Moscow holds the mirror of history up to politicians today proclaiming the need to find common ground with a dictator like Vladimir Putin.”
— Garry Kasparov, former world chess champion and author of Winter is Coming

“The most important work to appear for decades on the Soviet empire and its aftermath.”
— Edward Lucas, former Economist editor, from the introduction

“Russian interference in Western politics has been in the news of late,
but Bukovsky’s deep dive into Soviet-era documents demonstrates
that for much of the 20th century it was not paranoid fantasy, but cold, hard fact.”
— Glenn Harlan Reynolds, Beauchamp Brogan Distinguished Professor of Law, University of Tennessee and author of An Army of Davids

“A massive and major contribution… highly valuable material.”
— Robert Conquest, author of The Great Terror and Harvest of Sorrow

“At last, a book in the West that describes the Red Empire as seen by we who had to live under it.”
— Mart Laar, former Prime Minister of Estonia and recipient of the Truman-Reagan Medal of Freedom

“If you seek to understand why we now face a renewed Cold War, one even more dangerous than the first, this is the first book you must read. If you seek to understand Russia’s interference in electoral democracies throughout the free world, this too is the first book you must read. But above all, if you seek to understand why you never even heard about this book—published in nine languages, an international bestseller—this is the book you must read.”
— Claire Berlinski, contributing editor of City Journal and author of Menace in Europe: Why the Continent’s Crisis Is America’s, Too

Numerous examples are provided in a soon to be released book, Judgment in Moscow, by the heroic Soviet dissident, Vladimir Bukovsky. He makes use of extensive first hand documents that he personally stole from Russia’s Central Committee (C.C.) archives, which have never before been accessible to Americans.

The media must be tripping over themselves to see what Bukovsky reveals…right?

Well, not so much. Because the C.C. documents demonstrate, irrefutably, that the American Establishment was the one willingly and repeatedly colluding with Russia — an inconvenient fact.

This is history that the mainstream media don’t want Americans to know. Bukovsky’s book was actually first published over two decades ago in many languages and countries. But not in America.

…..
The true history of collusion explored in Judgment in Moscow will be accessible only due to the efforts of a tiny independent publisher, Ninth of November, who wanted to get the truth out.

The stolen documents tell the story. For instance, to cite just one of the many examples, there was collusion between America’s ABC and Russia’s C.C. A 1966 secret C.C. document explained:

‘The Novosti Press Agency has received a request from representatives of the American television company ABC concerning the creation of a joint special television report on the life of a worker’s family from the ‘Rostselmash’ factory in Rostov-on-Don. The film will show various aspects of the life of a working-class family, and the family will be used to illustrate the achievements of the Soviet government over the past 50 years.’

Russia’s C.C. concluded this was a good project to go ahead with.

The entities who tried to dupe us into thinking Trump is a Russian agent were the very same ones literally colluding with Comrade Brezhnev to pump out pro-communist pro-Russia disinformation.

Jay Nordlinger at National Review is doing a interview series with Bukovsky.

“Have people said to you over the years, ‘Thank you for doing what I should have and could not, or did not’?” I put this question to Bukovsky. “There were people like that,” he answers. “But there were more people who thought that. I could see that message in their eyes. But they would not say it openly.”

And “I would not mind,” says Bukovsky.

“When you live in a totalitarian country, you learn not to be judgmental. You learn to be very cautious in your judgments because you know that people sometimes find themselves in hopeless situations.”

• Bukovsky spent twelve years in the Gulag: prisons, labor camps, and sadistic psychiatric hospitals. I ask him, “Did you ever think you would not survive?” “Oh, yeah,” he says. “It was the dominant idea.” He thought they would kill him. “Most of my friends never expected to live to the age of 30. We all thought it was a given. It was just luck that I survived. Most of my friends were killed.”

….
• Early in 1977, shortly after Inauguration Day, Bukovsky met with the new American president, Jimmy Carter. What did he think? “Naive,” he says, in a word. He found President Carter naive, and uncomprehending. “He was just a blank.”

Bukovsky further says he has “a funny story” to tell me. “Before I went to see Carter, I went to see Solzhenitsyn in Vermont.” He was with his fellow dissident and fellow exile, Alexander Solzhenitsyn, for three days, “talking almost non-stop.” Solzhenitsyn asked Bukovsky to call him after the meeting with Carter, to tell him how it went.

“So, I called him. The first thing he asked was, ‘How long was the meeting?’ I told him I was with the president for 40, 45 minutes. ‘Forty-five minutes!’ Solzhenitsyn said. ‘You should not have gone for so short a meeting. You should have refused.’”

What the great man, Solzhenitsyn, did not know is that 45 minutes is an eternity of a president’s time. Very few people — and even fewer private citizens — and even fewer foreign private citizens — get 45 minutes of a president’s time.

Solzhenitsyn could not understand this, says Bukovsky. “His idea was that Carter and I should go somewhere in the countryside, sit down, and talk half the night as Russians do, with a bottle of vodka, and then we would understand each other.”

"If you have the guts to keep killing people for long enough, then you are no longer a terrorist but a statesman and Nobel Peace Prize winner. This will not remain unnoticed by Hamas."
— VLADIMIRBUKOVSKY
(being "ironic", in his never-published in English "Judgment In Moscow")

]]>
meep2019-05-13T08:41:21Z2019-05-12T21:22:35ZTaxing Tuesday (on Monday): Trump Taxes! Surprise Money! Or Not!tag:stump.marypat.org,2019-05-08:38b055a9c25740dc7e39822b07585fe0/58b0e4de372b475c0970d5ca161bfaee
Yes, I know it’s Monday, but I have big news coming out tomorrow, and I do not want to step on it.

1. Mr. Trump was deep in the red even as he peddled deal-making advice

“Trump: The Art of the Deal” came out in 1987. It became a best seller — and a powerful vehicle for the self-spun myth of the self-made billionaire that would ultimately help propel him to the presidency.

Mr. Trump has long attributed his first run of business reversals and bankruptcies to the recession that hit three years later, in 1990. But the new tax information reveals that he was already in deep financial distress when his master-of-the-universe memoir hit the shelves.

….
2. In multiple years, he appears to have lost more money than nearly any other individual taxpayer

The tax results for the years that followed trace an arc of continued empire building — and gathering loss.

He bought the Eastern Airlines shuttle for $365 million; it never made a profit, and he spent more than $7 million a month to keep it flying. His new Trump Taj Mahal Hotel and Casino, opened in 1990 with more than $800 million in debt, sucked revenue from his other casinos, pulling them along into the red.

And so, year after year, Mr. Trump appears to have lost more money than nearly any other individual taxpayer, according to the I.R.S. information on high earners — a publicly available database with taxpayers’ identifying details removed. Indeed, in 1990 and 1991, his core businesses lost more than $250 million each year — more than double those of the nearest taxpayers in the sampling for those years.
…..
3. He paid no federal income taxes for eight of the 10 years

Business owners like Mr. Trump may also use their losses to avoid paying taxes on future income. Over the years, those losses rolled into a $915.7 million free pass, known as a net operating loss, that appeared on his 1995 tax returns, pages of which were mailed anonymously to The Times during the 2016 campaign.
…..
4. He made millions posing as a corporate raider — until investors realized he never followed through
…..
5. His interest income spiked in 1989 at $52.9 million, but the source is a mystery

Amid the hundreds of figures on 10 years of tax transcripts, one number is particularly striking: $52.9 million in interest income that Mr. Trump reported in 1989.

In the three previous years, Mr. Trump had reported $460,566, then $5.5 million, then $11.8 million in interest.

The source of that outlier $52.9 million is something of a mystery.
…..
Mr. Trump’s interest income fell almost as quickly as it rose. By 1992, he was reporting only $3.6 million.

I’m not sure that the specific outlier really tells us anything. Many people have extremely volatile incomes when you’re in that stratosphere.

But let’s ignore that for a moment: why are all these people hyperventilating over Trump’s tax returns?

They are highly unlikely to find the level of detail needed to indicate pay-offs, etc. I’ve had non-wage income sources, and the IRS mainly cares that I don’t under-report, and that I don’t classify a certain type of income in a way that’s tax-advantaged when it’s not. It doesn’t care enough for me to indicate that I made my side money, for example, on a webcast on graphing versus a spreadsheet I made to project annuities.

I can think of several potential motives, from trying to humiliate and/or expose Trump as a liar re: his supposed riches to trying to catch potential illegalities (that one is highly unlikely, I think, but I have different prior probabilities than the people seeking the returns) to just hoping that, after the Mueller report deflation, they can find that pony in the pile of horseshit.

Good luck with that.

The people who are asking for this info are not tax professionals, and they wouldn’t know how to conduct an audit of anything, much less of tax returns. I don’t even wish them well on their journey of trying to come up with a reason Hillary Clinton lost an election, because they’re not looking in the most likely place. No, not her emails. Her.

Other coverage of the Trump tax returns, so it doesn’t muddy up my lovely tax stories below:

Jumping off from Althouse, the kind of people who do understand that type of tax returns do not explain these things for free. They generally do not need to go on TV to get clients. They do not work for newspapers or TV news programs (because they can make more money doing actual tax work), and they certainly aren’t going to do an analysis for free.

Maybe there are a couple such people. But it’s going to be not very interesting, I bet.

Jumping off from Jane the Actuary, I find it highly unlikely there is anything of obvious illegality in there. It’s not like Trump filed his own taxes. He paid people to put that stuff together. It’s not easy to get away with elaborate tax fraud for decades, if that’s what you’re looking for. If you’re trying to find evidence for bribery by foreign agents… what level of detail do you think you’ll find?

I think it would be very illuminating if all members of government were required to publish their tax returns while they were elected officials. I would love to see Nancy Pelosi’s and Bernie Sanders’s returns, for example. How, exactly, did they get so rich on their politicians’ pay?

SURPRISEMONEY IN ILLINOIS

I am highly skeptical about an “extra” $1.5 billion showing up in the middle of a contentious fight over budget and taxes.

We write to share the good news that Illinois received significantly stronger-than-expected revenues in April.

More than $4.1 billion in individual and corporate income tax revenues were deposited into the General Funds in the month of April 2019, up $1.14 billion or 38% from April 2018 income tax deposits of $2.999 billion. This is also more than $1.5 billion more than internally projected for April 2019.

A number of factors likely contributed to this increase, including the performance of the stock market, better federal reimbursement for Medicaid, the elimination of the federal state and local tax deduction and additional changes in the federal tax law that meant many taxpayers didn’t withhold sufficient taxes through payroll deductions, backloading their end-of-year tax payments. Anecdotally, strong revenue collections occurred in many other states in April. Additional data and analysis are required to present a comprehensive explanation for the revenue shift, and our staffs are working to provide the General Assembly with a more detailed analysis.

As an immediate result of the strong April performance, coupled with revenue collections year-to-date, the State of Illinois will be able to address most of the $1.6 billion shortfall in the enacted FY19 budget because of the April revenues alone. GOMB and the Department of Revenue will be increasing the forecast of general funds individual income taxes by $1.249 billion and general funds corporate income taxes by $186 million, for a total revision of $1.435 billion, a revision of approximately 7% from February 2019 income tax estimates.

Additionally, based on this strong performance, the Department of Revenue has also re-evaluated its FY20 projections. DOR is also projecting that income tax revenue for the FY20 general funds budget will be roughly $800 million higher than initially projected, or nearly $22 billion instead of $21.18 billion. This represents income tax collections roughly 4% higher than the initial base projections.
…..
Governor Pritzker remains committed to a financially responsible budget that addresses Illinois’ outstanding obligations, and recommends that these additional revenues can be dedicated to the state’s statutory FY20 pension payment.
……

Sincerely,

David Harris
Director
Department of Revenue

Alexis Sturm
Director
Governor’s Office of Management & Budget

[Emphasis added]

So…. what does federal under-withholding have to do with state under-withholding?

Still not understanding it.

Again, I have to determine my state withholding independently of the federal.

Look, I’m not a personal tax expert, but I know how I’ve done my own withholding, and that I had to do federal, NY, and CT all separately. My understanding is that state income taxes generally don’t let you deduct for federal taxes (unlike federal allowing it the other way, even with the SALT cap (SALTCAPZERO! NOW!))

And my confusion stemmed from me primarily being a wage earner — as opposed to owning a business and having business income. I forgot that the TCJA changed the definition of taxable income!

Ah, thank you. Obviously, I mainly work for other people, so these aren't things in my own income.

I remember various groups pointing out that perhaps states should decouple their defn of income from federal, so they don't get whipsawed by fed tax changes

The tax code is very complicated, and I forgot that there were issues with the states simply taking the federal definition of taxable income … because the specific technical details I dipped into were for regular wage-earners and (for my day job) the effects on life insurers (and let me tell you, I got a lot of mileage on the changes to insurance companies).

“Last week in testimony before the House and Senate Appropriations Committees, I was pleased to announce that our April revenues were $1.5 billion higher than expected. However, I also sounded an important note of caution about those revenues. It is important to keep in mind that we still face a $6-to-$8 billion backlog of pending bills with no dedicated revenue stream to pay them. We have aggressively targeted the state’s highest-interest-accruing bills with those receipts, bringing the backlog lower than it would otherwise be, to $6.07 billion as of today.

First, let’s stop right there. What do bills and revenues have to do with each other? (I’m not joking about this). The bills do not create the revenues, nor vice-versa. Not in government.

So, I want to know what the cause of higher-than-expected revenues. Not about the bill backlog, which we already know about.

“While we cannot confirm or deny the Dept. of Revenue’s projection of $800 million more than expected for Fiscal Year 2020 at this time, we are hopeful and will continue to research this possibility thoroughly. My office has prioritized pension payments and debt service since I took office and that will be our policy going forward. “

And that’s the full press release. My takeaway is that they don’t know why there was more in revenues, and whether that will extend to the full year. I can respect that.

GRADUATEDTAXSTUFF

I was going to put this in the tax stories below, but I want to do a quick refutation here.

The reason I’m asking this is if all states, whether with graduated income taxes, or with level income tax rates, generally decreased their tax rates… then it may be something more specific to the time period being investigated, as opposed to something indicative of graduated tax rates.

Now, if those level tax states were much more likely to lower their tax rates than the graduated tax places, or at least were less likely to raise tax rates, then you’d actually be proving something closer to the cause-and-effect case.

I leave it to somebody else to explain to the CTBA about how this sort of inductive reasoning works. They’re not at all showing whether graduated rates make it more or less likely to increase or decrease tax rates.

The other issue is that there are rates going back to 2000 that are covered…and I thought maybe there was something untoward that the two prior years were excluded from the analysis. However, I went to look, and the way the Tax Foundation presented the info for 2000-2001 was different from that of 2002 and after. So that seems fair.

I don’t think Trump’s tax returns are really going to do much for the 2020 election, but y’all waste your time, Dems.

TAXTWEETS

Reporter to Sarah Sanders: "Where is President Trump hiding his tax returns"? Sarah: In a very secure place where they won't be found". Reporter: "Where"? Sarah: Underneath Obama's college records, passport application, grad school records,& selective service registration"

Here is Hillary Clinton's hypothetical about a candidate calling on China to hack Trump's taxes, and why Republicans putting partisanship over national security is a dangerous thing. pic.twitter.com/p1TIH6kCMx

Dear lord, I do not find cluelessness cute once one is above 10 years old.

You mean the same Betsy DeVos that has given more money to charity, & school choice causes for minority kids, than you have made in your entire lifetime? That Betsy DeVos?
Your ability to humiliate yourself and your supporters on this platform is absolutely peerless. What a joke https://t.co/S1twZQEBTY

Everyone knows increasing cigarette taxes reduces smoking right? Wrong. PA increased the cigarette tax from $1.60 to $2.60 in 10/16 (38% increase). Smoking rate increased in adults by almost 1% the next year. Maybe it was the 40% ecig tax that enacted at the same time? Ya think? pic.twitter.com/9XhKEy5h2A

SACKEDFORASKING A QUESTION
Engineer: “It would be good to see higher-wage earners given a tax break.’’
Shorten: “We’re going to look at that”
Next Day his company, QLD Ports gives him the sack for breach of contract.#FreedOfSpeech Much?https://t.co/pWgFCwtIz6

Hey now, the UK could do as the US does and make it really tough to escape US taxes. Best wishes.

]]>
meep2019-05-12T19:06:47Z2019-05-12T20:36:28ZTeachers Appreciation Week: Public Teacher Mortalitytag:stump.marypat.org,2019-05-12:38b055a9c25740dc7e39822b07585fe0/2c43751aedc8178801b3365939b43dfd
Okay, before I begin. A few videos I did on my favorite teachers:

Those are all positive. In case you want to escape from the following.

I’m going to be actuary-ing all over the place below, because it’s Mother’s Day, and dangit, I’m indulging myself.

ALLTEACHERSMUSTDIE

(eventually)

In my prior post on teachers pensions, I mentioned that teachers tend to be longer-lived than many others who have defined benefit pensions, which is why their pensions are more expensive for the same nominal $ amount of benefits: they simply live longer.

To the extent that teachers’ longevity is reflected in valuation assumptions, you will see this come out in terms of what the various costs are — whether normal cost or the actuarially “required” contribution, which covers the normal cost and an amortized amount of the unfunded liability.

Of course, if the longevity is low-balled compared to the actual experience coming out, you’ll see this in rapidly increasing contribution requirements. To be sure, the discount rate is an even bigger factor here, but if both mortality and discount rate (and payroll increase rate and…) are off, it really starts to bite. But we’ll get into that in the next post.

So let’s start digging into what the Society of Actuaries has found in preliminary research on public pension mortality.

As a result of comments received on the prior RP-2014 Mortality Tables (RP-2014) study, which included
only data from private pension plans, the Society of Actuaries (SOA) and the Retirement Plans Experience
Committee (RPEC or “the Committee”) initiated a mortality study of public pension plans in January 2015.
The primary focus of this study was a comprehensive review of recent mortality experience of public
retirement plans in the United States. The objectives of this study were the following:

2. Provide new insights into the composition of gender-specific pension mortality by factors such as
job category (e.g., Teachers, Public Safety, General), salary/benefit amount, health status (i.e.,
healthy or disabled), geographic region and duration since event.

….
All of the deferred annuity values shown in the following tables were developed using amount-weighted
mortality rates, a pre-retirement discount rate of 7.0% and a post-retirement discount rate of 5.0%. The
7.0% rate was chosen to be broadly representative of discount rates recently used in the funding
valuations of public-sector retirement plans, and the “spread” of 2.0% broadly representative of recent
post-retirement cost-of-living adjustments.

Here is the comparison table specifically for teachers:

I will try to keep this simple so that non-actuaries can understand. The annuity factor, on a monthly deferred-to-62 basis, means that if you’re projecting that at age 62 one gets, say, $60,000 per year in monthly payments (assuming asset returns of 7% per year, and annual COLAs of about 2% per year), the actuarial present value of that benefit equals $60,000 times the annuity factor at the current age. (If you’re over age 62, you assume that benefits are already being paid)

So, if we use the Pub-2010 tables for teachers, and a female teacher is currently 55 years old, the actuarial present value of $60,000 per year at age 62 is 9.1655*$60,000 = $549,930.

The annuity factors are the real thing one should compare, not life expectancies nor mortality rate ratios.

Note on the right side of the table, comparisons are made against fairly common mortality assumptions. For that age 55 female teacher, the Pub-2010 assumptions give a cost ranging from 4% to 7% higher than standard assumptions.

Back to the summary:

The amount-weighted deferred annuity values for Teachers are consistently larger than those for Public
Safety and General, and, in fact, they are considerably larger than even those developed using the White
Collar version of the projected RP-2006 table.
…..
Multivariate analysis indicated that salary (for Employees) and benefit amount (for nondisabled
Annuitants) were the most statistically significant predictors of mortality differences within individual
gender/job classifications. As a result, the Committee produced Above-Median and Below-Median
versions of the Employee, Retiree and Contingent Survivor tables. In general, the impact of moving from
the total dataset table to either the Above- or Below-Median tables is considerably smaller for Teachers
than for Public Safety or General, and the impact for males in each of the three job categories is
considerably larger than that for females.

Can’t say I’m surprised about the salary effect for males and non-effect for females. That’s for another time, though.

Here’s just mortality ratios for female and male teachers against the standard assumptions — ratios below 1.0 mean that the mortality rate for teachers at those ages is lower than that from the other DB mortality tables.

These are retiree mortality rates compared. There are also graphs for active employees, and similarly, we see ratios well below 1.

Mind you, for all the ages below 70 or so, mortality rates are very low. So even if the new tables show even lower mortality, it doesn’t necessarily have a huge effect.

Again, why we see increases in pension values in the single digit percentage range.

Of course, if the “true” discount rates are a lot less than 7%… then the bite would be a lot bigger.

WHY NO COMBINEDTABLES?

Before I go into this, there are already defined benefit mortality tables out there. They were developed on private pensions, and many times single employer pension plans. They do have breakouts by white collar/blue collar/intermediate.

This is what the SOA had to say in their own report:

13.1 Rationale for No “Combined” Public Table

The Committee did consider publishing a “combined” public plans table that included all of the data
received for the study from each of the three job categories. Ultimately, it was decided that this would
not be done. In addition to the statistically significant differences in mortality by job category discussed in
Section 4, it was determined that “combined” rates at various ages were often more reflective of the
relative concentrations of the component subpopulations (Teachers, Safety, General) than of underlying
mortality characteristics. The covered populations in many public retirement plans have demographic
characteristics (including job category) that are quite different than that of the population that would
have been used to develop any combined Pub-2010 table. Therefore, it would be better for the actuary
with knowledge of the specific member demographics either to segregate the populations and use
appropriate tables for each, or to construct a custom combined table using appropriate weighted
averages of the job category and Above- or Below-Median rates from this study.

Last, many public-sector retirement programs specifically cover Teachers, Safety or General employee
populations. Even those that cover multiple populations often provide different benefit features and track
census data separately by job categories.

I looked into the report to see the comparison by job type… there was the data, but not a nice graph. So I made my own, using the data from Appendix D, tables D.4 which gives life expectancies from specific ages.

Most people find life expectancy from age X confusing, so I’m going to graph expected age at death given current age.

Females:

Males:

So some things to note: teachers, for both females and males, the life expectancy is higher by a year or two compared to the other job categories for most working ages, and the difference gets smaller in retirement ages (which one would expect).

There’s not much difference between safety and general male public employees mortality, and there is a bigger difference for females.

In any case, teachers are a fairly long-lived bunch.

Therefore, teachers pensions at the same benefit levels are going to be more expensive (in experience) than general public employees and safety officers.

BETTERMORTALITYREFLECTED IN FEWPLANS

Now, I have mentioned this is a new set of mortality tables, but that doesn’t mean the difference in mortality wasn’t already recognized by actuaries.

For smaller plans, they’d likely use a standard table and perhaps adjust it to allow higher life expectancy.

But, luckily, I don’t have to investigate this myself. The SOA already did.

Here are comparisons of annuity factors — yes, under a variety of discount rate/COLA assumptions. But they’re all being compared on the same discount rate/COLA basis.

The black lines are the annuity factors using the Pub-2010 tables.

That most of the data points are under the black lines means that if the plans switch to these updated mortality tables, the recognized cost on the balance sheet will be higher (again, single-digit percentages higher). The higher the discount rate, the less this change matters.

Of course, many plans are having to lower their discount rates now to reflect current reality.

PROBLEM TO BE FIXED?

The only problem to be fixed, given this new information, is to check that mortality assumptions used for valuations make sense for public plans. In the above comparison, it’s not just teachers plans potentially low-balling longevity, it’s also general public employees and public safety plans. The largest plans, as in California or Texas, will likely have good enough credibility to develop their own tables. That’s fine.

But for the smallest plans? They really need to pick one of the standard tables.

There was an actuary who was way off compared to population averages, which was known by lots of folks. That’s partly why he was hired, after all — compared to other actuaries, he developed lower cost requirements, because he had mortality assumptions better suited to a population from 20+ years earlier, and not now. He was suspended by the American Academy of Actuaries for two years effective August 2018, the first I’ve seen for using inappropriate mortality assumptions in public plans.

I’m sure others have taken that lesson. His particular assumptions were WAY off, as opposed to using one of the current private plan mortality tables, which is off by single-digit percentages for annuity factors.

Still.

It’s good to see the professional actuarial organizations stepping up and investigating what is going on in public pensions, just as they have for private pensions (which have federal oversight… and public pensions have essentially none.)

Either way, teachers pensions, all else being equal, are more expensive than safety officer and general public employee pensions. And to the extent that actuaries have been reflecting it, various governments have often short-changed these plans by deliberately undercontributing to these plans.

I suppose they think the “It’s for the children!” argument will hold. For retired teachers. Who are no longer teaching. And cannot strike. And many of the teachers pensions are for relatively modest amounts, given their base salaries generally being lower than late career safety officers, and given that they don’t do much overtime to spike their pensions.

But if the teachers live longer, and retire about the same ages as other public employees, then the COLAs will bite and they can still end up costing more than other employee categories. Also, they outnumber all the other categories in many states and localities.

This upcoming week, I’ll be looking at what’s going on in particular states — Oregon, Kentucky, and more. In most of these cases, teachers pensions are a huge portion of the pension problem.

I have a lot of sympathy for all involved, but if we are to really solve these issues, we need to reflect the reality of what’s going on in these plans.